After months of strong outflows, the fortunes of European equities were finally reversed in June, with the asset class seeing inflows for the first time despite the looming threat of the referendum on the UK’s membership in the EU, and the subsequent Brexit vote.
TrackInsight’s latest data for the month of June shows European-listed ETFs in the Developed Market Europe Large Cap category had taken in €378m in June, reversing months of outflows.
Over the three months to the end of May, this sub-asset class had seen some €8.6bn of outflows (as you can see from our previous post), making it the worst hit equity region among those covered by TrackInsight’s research over that period.
This reversal might suggest investors finally feel it is time to take advantage of the falls in valuations experiences by some European names, especially in the wake of the Brexit vote, which saw many European stock exchanges drop by close to 10% in a day.
European indices were hit hard across Europe, with the EuroStoxx 50 down 9% after the referendum result was announced and the FTSE 100 falling 8.3%. However, since then the FTSE 100 has rebounded to trade 7.7% higher over the year to 22 July, though the EuroStoxx remains in the red year to date.
The iShares FTSE 100 was the most traded ETF during the month, suggesting investors were taking advantage of the volatility in the UK market to adjust their asset allocations; some €2.7bn in total has been traded in this product in June.
Investors also heavily traded within the European equities space, with the iShares Core DAX and Lyxor Euro Stoxx 50 ETFs among the top five most traded products in June; these saw €1.9bn and €1.5bn worth of trading activity, respectively.
However, the strong ETF trading activity may also indicate investors lack long-term conviction in their asset allocation decisions and are choosing ETFs to move quickly in and out of the market as volatility persists. The following months will show whether the inflows mark a long-term trend or short-term tactical rebalancing.
Meanwhile, while money has finally started flowing into European equities, flows into emerging market equities seem to have reversed, with just €7m going into Emerging Market ETFs in June; a significant slowdown from nearly €1.7bn over the previous two months.
Another asset class that has seen a reversal of fortunes is Developed Markets Corporate High Yield – after a couple of months of moderate inflows, these ETFs shed some €420m during June.
Both these statistics point to risk aversion among investors, suggesting the Brexit vote did hit sentiment towards riskier parts of the market, despite stronger flows into European stocks.